Capacity of parties to enter into a contract

Capacity of Parties to enter into a Contract


Pretty much every exchange around us is an aftereffect of a contract. At the point when we purchase vegetables from the vender, we promise to pay him cash in return for vegetables. In the event that when we own a shop, we enter into two contracts; one with the producer of the merchandise and second with the client who will purchase the products from our shop.

While purchasing vegetables we probably won’t focus with regards to whether the merchant is adequately able to enter into a contract. Nonetheless, on the off chance that if someone is a retailer, he needs to check and be certain that the producer is lawfully equipped for doing as such. This gets significant for you to hold the maker lawfully obligated for any defaults submitted by him during the terms of the agreement.

This article manages the lawful essentials of a gathering prior to enter into a contract.


Sec.11 of the Indian Contract Act, 1872 records down the capabilities which empower an individual in India to enter into contracts-

  1. An individual ought to have attained the age of majority according to the law of the country of which he is a citizen.

In India, the age of majority is governed by the Indian Majority Act, 1875. According to Sec. 3 of the Indian Majority Act, 1875, an Indian citizen is said to have attained the age of majority upon completion of eighteen years of age. In the USA (the majority of the states) and the UK, the age of majority is 18 years as well.

In any case, if an individual is below the age of 18 years and a guardian has been delegated for him, he will attain majority at the age of 21 years.

  1. An individual should be of sound mind at the hour of entering into a contract.

According to Sec. 12 of the Act, a person can be said to be of sound mind when he can assess, understand his actions and realize the consequences of obligations imposed on him at the time of entering into a contract.

  1. An individual ought not be disqualified under any law to which he is subject.


According to the Indian Contract Act, 1872 all people who don’t meet the criteria according to Sec. 11 of the act are incompetent to contract. Thus, we can derive that the following group of people don’t have the lawful ability to enter into a contract:

  1. Minor In India, a minor is an Indian citizen who has not finished the age of eighteen years. A minor is unequipped for understanding the nature of the liabilities emerging out of an agreement. Consequently, a contract with a minor is void ab initio i.e., void from the starting and can’t be upheld in the court of law. The outcome is that a party can’t compel the minor to perform his obligations and promises as counted in the agreement i.e., plead specific performance of an agreement or rule against estoppel.
    • Mohori Bibee vs Dharmodas Ghose
    • The respondent, Dharmodas Ghose, a minor, had mortgaged his property for the moneylender, Brahmo Dutt as a security to get a loan of INR 20,000/- Mr. Brahmo Dutt had approved Kedar Nath to enter into the transaction through a power of attorney. Mr. Kedar Nath was already informed regarding the fact that Dharmodas Ghose was a minor through a letter sent by his mom. Nonetheless, the deed of mortgage contained an assertion that Dharmodas Ghose was of 18 years. The respondent’s mom filed a suit on the ground that the mortgage executed by his child is void on the ground that her child is a minor. The relief sought by the respondent was allowed and an appeal was preferred by the agents of Brahmo Dutt under Calcutta high court. The same was excused. An appeal was then made to the Privy council.
    • The Privy council held that
      1. A contract with a minor is void-ab initio i.e., void from the beginning.
      2. 7 of the Transfer of Property Act, 1882 states that an individual competent to contract is competent to transfer a property.
      3. Subsequently, the mortgage executed by the respondent is void.
    • Notwithstanding, if a minor enters into an agreement and plays out his part of commitments, the other party can be constrained to perform and satisfy its commitments, and, in such occasions, the contract turns out to be lawfully enforceable. 
  2. Person of unsound mind
  3. An idiot, in clinical terms, is a state of mental impediment where an individual has a psychological age of not exactly a 3-year-old child. Consequently, they are unequipped for understanding the nature of the contract and it will be void since the earliest reference point.
  4. Lunatic: An individual who is of sound mind for certain period of time and unsound for the remaining time duration is known as a lunatic. At the point when a lunatic enters into a contract while he is of sound mind, i.e., during that time he is capable of understanding the nature of the contract, it is a valid contract. Else, it is void.
    • For example: A enters into a contract with B for sale of merchandise when he is of sound mind. A later happens to become unsound. It is a valid contract
  5. Individuals affected by the drug: If a person enters into a contract when he is affected by liquor or drugs, the contract may or may not be valid. On the off chance that an individual is so drunk at the time of entering into the contract that he isn’t in a situation to comprehend the nature and outcomes, the contract is void. In any case, on the off chance that he is fit for understanding the nature of the contract, it will be enforceable.
    • For example: A enters into a contract with B affected by liquor. The burden of proof is on A to show that he was unequipped for understanding the consequence at the time of entering the contract and B knew about his condition.
  6. Persons disqualified by law
  7. Alien enemy: An alien enemy is the citizen of a nation India is at battle with. Any agreements made during the war period with an alien enemy are void. An Indian citizen dwelling in an alien enemy’s area’s will be treated as an alien enemy under the contract law. Contracts made before the war period either gets broken up in the event that they are against public policy or stay suspended and are resuscitated after the war is finished, if they are not barred by limitation.
    • For example: A, of nation X, orders products from B, of nation Y. The merchandise is transported and before they could arrive at Y, nation X proclaims a battle with nation Y. The contract among A and B gets void.
  8. Convicts: A convict can’t enter into a contract while he is carrying out his punishment. however, on his completion of punishment, he regains is capacity to enter into a contract.
    • For example: A, is carrying out his punishment in prison. Any agreement endorsed by him during this period is void.
  9. Insolvent: An insolvent is an individual who is pronounced bankrupt or against whom indebtedness procedures have been filed in court or resolution professional takes possession of his assets. Since the individual doesn’t have any control over his resources, he can’t enter into contracts concerning the property.
    • For example: A enters into a contract for the sale of merchandise with B. Before the deal happens, a bankruptcy suit is filed against A. A sells the products to B during pendency of bankruptcy procedures. Thus, the contract is valid.
  10. Foreign Sovereign: Diplomats and ministers of foreign countries appreciate contractual immunity in India. One can’t sue them in Indian courts except if they submit themselves to the jurisdiction of Indian courts. Furthermore, sanction from the central government is likewise needed in such cases. Be that as it may, the foreign sovereign has the power to implement contracts against the third individual in Indian courts.
  11. Body corporate: An organization is a counterfeit individual or an artificial person. The capacity of an organization to enter into contract is determined by its memorandum and articles of association.


Competency of parties to contract is quite possibly the main necessities to make an agreement valid and enforceable in the court of law. A contract made by an individual who doesn’t have the mental ability to comprehend the nature and outcomes of the agreement is void ab initio. Then again, contracts with neurotics, individuals affected by drugs may or may not be void depending on the conditions encompassing the circumstance. An individual regains the legal capacity to contract upon removal of any of the disqualifications. Companies while entering into contracts with each other consistently attempt to shield their interests. Representation and indemnification are the most usually used provisions to guarantee that both the parties are competent to contract.


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